South African Institute of Race Relations NPC Petition to the Minister of Finance of the Republic of South Africa regarding ministerial powers under the Preferential Procurement Policy Framework Act [No. 5, 2000]

Introduction

This petition to the Minister of Finance of the Republic of South Africa is made by the South African Institute of Race Relations NPC (IRR), a non-profit organisation formed in 1929 to oppose racial discrimination and promote racial goodwill. Its current objects are to promote democracy, human rights, development, and reconciliation between the peoples of South Africa.

According to Section 3 of the Preferential Procurement Policy Framework Act (the Act), the Minister of Finance (the Minister) has the power to grant organs of state exemptions from the point system of preference in procurement that would otherwise be required under Section 2 of the Act. Section 3 of the Act states:

“3. The Minister may, on request, exempt an organ of state from any or all the provisions of this Act if—

  1. it is in the interests of national security;
  2. the likely tenderers are international suppliers; or
  3. it is in the public interest.”

It is in the public interest to exempt Eskom from the Act’s preferential system, by reference to 3(c) of the Act. Because the case is so clear there is no need to also address whether the national energy crisis warrants national security considerations under 3(a) of the Act.

The Minister is empowered to maximize value-for-money procurement to minimize loadshedding.

Implementing State Capture Commission Report

On January 8, President Cyril Ramaphosa said "We call on all South Africans to engage with the [Judicial Inquiry into State Capture] Commission's Report, and to be part of the national effort to put state capture behind us and build an ethical, capable developmental state, and a society governed by the values of our democratic Constitution and the Rule of Law."

On January 4, Part 1 of the State Capture Commission Report was published, including the heading “Problems in the legislative design”. Having tabled the Act and two other pieces of statute in which the Minister of Finance is the defined Minister, the Commission Report notes that “a critical question” has been left “unanswered: is it the primary intention of the Constitution to procure goods at least cost or is the procurement system to prioritise the transformative potential identified in section 217(2) [of the Constitution]? There is an inevitable tension when a single process is simultaneously to achieve different aspirational objectives.”

The State Capture Report goes on directly in four paragraphs that are quoted fully:

There are of course many cases, one hopes the vast majority, in which the award of the tender satisfies both objectives of the Constitution but undoubtedly there are other cases some of which may well be high-value tenders in which one or other of these two objectives must be preferred, and it is in such cases that the legislation fails to give guidance.

In the view of the Commission the failure to identify the primary intention of the Constitution is unhelpful and it has negative repercussions when this delicate and complex choice has to be made, by default, by the procuring official.

Ultimately in the view of the Commission the primary national interest is best served when the government derives the maximum value-for-money in the procurement process and procurement officials should be so advised.

The same problem is encountered when a choice must be made between the competing virtues of localisation and lower cost. Again, the view of the Commission is that the legislation should make it clear that in such a case the critical consideration is value-for-money.

To reiterate, “the primary national interest is best served when the government derives the maximum value-for-money in the procurement process”. The State Capture Report provides timeous, copious, and authoritative evidence that a) it is no good mixing words about whether a particular procurement system does or does not maximize value-for-money and b) that it is unambiguously in the public interest to maximize value-for-money in public procurement. This general proposition applies, a fortiori, to the particular instance of Eskom.

What is the greater good?

CEO Andre de Ruyter was recently asked, “There is scope under the Preferential Procurement Act for exemptions, and I know that Eskom has articulated that it would like procurement exemptions, so…would it introduce more efficiencies, more transparency, if Eskom where to be exempted?”

In his answer de Ruyter said that it is important to “bear in mind that electricity is one of the key input costs into essentially any economic activity. If you impose additional costs on the electricity industry, for whatever reason, and that may be very well intentioned and very noble in its intent, that additional cost is baked into your cost of electricity”. These costs will “ultimately percolate down the rest of the economy”.

In the same answer de Ruyter observed that “interposing non-value-adding intermediaries in the process of procurement inflates cost, it introduces additional risk in terms of potential corrupt practices, and it also slows down our supply chains. I therefore think that there's a good case to be made to streamline procurement processes in order to ensure that we can hit off this challenge in the most cost-effective way possible.”

The Minister is confronted by the “inevitable tension” mentioned in the State Capture Report between satisfying the interests of a small minority of business owners that hope to benefit from the point system under the Act, and, on the other hand, the entire South African population that depends on electricity.

“What is the greater good?” asked de Ruyter. “The greater good, surely, is to have the lowest cost electricity available as soon as possible in the most reliable manner, to business and industry so that we can grow this economy and solve challenges of economic growth and poverty.”

The Minister has the power to serve the greater good, the public interest, under 3(c) by exempting Eskom from the Act’s public preferential procurement system.

The IRR thus respectfully petitions the Minister to exercise his power under 3(c) to exempt Eskom at least until South Africa is safely past loadshedding.